This problem is making sure you understand that the parallelogram method requires premium written evenly throughout the experience period. If not, it will overstate/understate the average rate level depending on where you have more premium, where the rate/law amendment changes are, etc.

Vorian Atreides

04-25-2011, 09:41 AM

This problem is making sure you understand that the parallelogram method requires premium written evenly throughout the experience period. If not, it will overstate/understate the average rate level depending on where you have more premium, where the rate/law amendment changes are, etc.
Are you sure you're looking at the right problem? I've attached an image to this post so others can see w/o looking up the problem.

OP: You want to think about this problem as stratefying the loss data into two categories: Losses below the deductible and losses above the deductible. The Exam solution calculates this using a freq x sev approach.

Use the statewide study to get the overall frequency expected; apply that to the company-specific data to get total expected claim counts (from which you can then segment into number of claims above and below the deductible).

Finish off the problem by calculating the ratio of the losses that are eliminated by the deductible by total losses expected w/o the deductible for the company.

The solution outlines this very nicely. I would suggest learning it for the Exam.

booyah81

04-25-2011, 09:53 AM

Oops - sorry! TIA manual had the number down wrong then.

Yes, VA is right about that solution. I believe TIA has a different solution that is more difficult and less intuitive. Definitely go with the CAS solution.